Have you seen the deed that created the life tenancies and remainder interests?  I'm wondering if it says the parents' interest is held as joint tenants.  Were they joint tenants before they did this?  I think you wrote something about "tenants by the entirety" but that only happens in strange places and I don't know much about it.  If they owned it as tenants in common (which could happen if under state law, the attempt at joint tenancy was defective)  then maybe the kids have owned half of it since Dad died, and just didn't know it.  And their basis would be stepped up at his death.